Explore BrainMass
Share

Explore BrainMass

    Balance sheet formation to know working capital requirements

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Mars Electronics is a distributor for the Global Electric Company [GEC], a large manufacturer of electrical and electronics products for consumer and institutional markets. Below are the annual financial statements of the company for the last 2 years .

    Income Statements

    $ thousands
    12 months Ending
    6/30/1999 12 Months Ending
    6/30/2000

    Net sales $10,655 $11,720
    Cost of goods sold 8,940 9,834

    Selling, general & administrative expenses 1,554 1,677
    Depreciation expenses 44 76

    Interest expenses 62 70

    Corporate income tax 23 26

    Earnings after tax $32 $37

    Dividends to be paid 5 1

    Balance Sheets

    $ thousands
    6/30/1999 6/30/2000
    Assets
    Cash $160 $70
    Accounts Receivable 1,953 5,100
    Inventories 1,986 2,085
    Prepaid expenses 380 25
    Net fixed assets 733 830
    Total $5,212 $8,110

    Liabilities & owners' equity
    Short-term debt $50 $50
    Accounts Payable 1,450 $1,650
    Accrued Expenses 398 138
    Long Term Debt 800 3,700
    Owners' Equity 2,514 2,572
    Total $5,212 $8,110

    a. Compute Mars Electronics Working Capital Requirement (WCR) on June 30th 1999, and on June 30th 2000. Compute also the collection period and the inventories turnover for the period 6/30/99 and 6/30/00.

    Working Capital - A company's current assets minus its current liabilities - considered a good measure of both a company's efficiency and its financial health. Also known as "net working capital".

    1999: Current Assets - Current Liabilities = 5212 - 733 = 4479 - 1898 = 2581
    2000: CA - CL = 8110 - 830 = 7280 - 1838 = 5442

    1999: AR Turnover = Net Credit Sales / Avg AR = 10655 / 1953 = 5.46
    2000: 11720 / 5100 = 2.30

    1999: Inventory Turnover = Sales / Inventory = 10655 / 1986 = 5.37
    2000: 11720 / 2085 = 5.62

    b. Prepare Mars Electronics' managerial balance sheet on June 30th 1999,and on June 30th 2000.

    Just do ITEM B only a managerial balance sheet in excel

    © BrainMass Inc. brainmass.com October 9, 2019, 5:27 pm ad1c9bdddf
    https://brainmass.com/business/working-capital-management/balance-sheet-formation-working-capital-requirements-57515

    Solution Preview

    Mars Electronics is a distributor for the Global Electric Company [GEC], a large manufacturer of electrical and electronics products for consumer and institutional markets. Below are the annual financial statements of the company for the last 2 years .

    Income Statements

    $ thousands
    12 months Ending
    6/30/1999 12 Months Ending
    6/30/2000

    Net sales $10,655 $11,720
    Cost of goods sold 8,940 9,834

    Selling, general & administrative expenses 1,554 1,677
    Depreciation ...

    Solution Summary

    This solution explains how to make balance sheet in an alternate format of an organization to find out working capital.

    $2.19